The refinancing option is available only for conforming loans owned or secured by Fannie May and Freddie Mac, so this will include most loans. The only loans not eligible are FHA, VA and USDA loans. Those types of loans qualify for other assistance programs which would allow you to modify the loan so that you can retain ownership of your home.

 

Both Fannie May and Freddie Mac have 1-800 numbers to call and see if your loan qualifies (1-800-7FANNIE) and (1-800-FREDDIE).

 

Additional requirements are:

 

1. The property must be owner occupied (you must be living in the property)

2. The Borrower must have sufficient income to support the new mortgage debt,

3. The first mortgage can’t exceed 105% of the current market value of the property, and

4. You can NOT be delinquent on your mortgage – you must be current

The Modification program may be an option for those who are no longer current on their mortgage. This program requires the servicers to sign certain contracts with the Treasury Department, and these contracts will not be available until April 2009, so this may take a little longer.

 

To be eligible for the modification you must:

 

1. be an owner occupant of the property,

2. have an unpaid balance that is equal to or less than $729, 750,

3. have a loan that originated before January 1, 2009,

4. have a mortgage payment (including taxes, insurance and homeowners association dues) that is more than 31% of the borrowers gross monthly income, and

5. have experienced a significant change in income or expenses to the point where you can no longer afford your mortgage.

 

You don’t have to be delinquent on your mortgage payments, but you can be.

 

Under the modification, the lender will determine how much of an interest rate reduction is needed to get you to the 31% debt to income ratio and can lower the interest rate to as low as 2%. If at 2%, they can also modify the loan to extend the amortization period up to 40 years. If it still exceeds 31% then the lender must forbear principal.

 

The modified interest rate is not permanent. If the modified rate is below the market rate it will be fixed for a minimum of five years. Beginning in the sixth year the rate may increase no more than one percentage point per year until the rate reaches the Freddie Mac Primary Mortgage Survey rate on the day the modification was executed. If the modified rate exceeds the survey rate, the rate for the remainder of the term is the modified rate.

 

Keep in mind that you may still, even with these modifications, face a balloon payment. If you have reached the point where your lender is forbearing principal, the amount will be owed when the loan is paid off or the house is sold.

 

Also keep in mind that this program IS NOT mandatory – it’s voluntary. The government does offer financial incentives to those lenders that will participate, however, and most are expected to participate. Those who participate sign an agreement with the Treasury in which they agree to review every potentially eligible borrower who calls or writes asking to be considered for the program.

 

As these contracts are signed a list of those participating will be available on-line at www.FinancialStability.gov.